Thursday 28th February, 2008

 

A call for sanity

 
 
 
 
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In your article “EPA madness” in the February 21 Business Guardian, you appear to equate the statement by a group of concerned Caribbean citizens calling for a review of the EPA, with a defence of traditional export preferences. You go on to argue that sugar preferences have been a disincentive to modernisation and investment in refined products.

That may well be so. But we believe this misses the point of the statement and of other concerns about the EPA that have been expressed in numerous public commentaries (available at Hyperlink http://normangirvan.info) Please allow us space in your newspaper to set the record straight.

The central point of the statement is that the EPA is a treaty that is legally binding, of indefinite duration, will be very difficult to amend once it is in force, covers a wide range of subject areas that have hitherto been within the jurisdiction of domestic or regional policy, and which few people know about and even less understand.

Settlement procedures

The areas include services, customs administration, investment, current account payments, expanded intellectual property protection, public procurement, electronic commerce, competition, investment, labour and the environment. There are also tightly prescribed dispute settlement procedures and implementation institutions with powers to take binding decisions. Caribbean countries will be for many years amending their laws, regulations, policies and practices and setting up new institutions to comply with the EPA.

Can you imagine a situation where a new Constitution touching many aspects of the lives of citizens were to be adopted within two months from publication of the text to provisional application, without widespread public consultation, dissemination and opportunity for review?

The EPA is like a new economic constitution regulating many aspects of our external and domestic policy. If you doubt us, take even a cursory look at the documentation and the level of detail of the obligations.

We have heard much about stakeholder dialogue and consultation but at the end of the day you must agree that public awareness and understanding about the EPA are utterly inadequate. Besides, a lot of technical jargon is used that turns off the majority of people.

Even as we write, the private sector does not know what import liberalisation commitments have been agreed that will impact on their businesses (see David Jessop’s column of February 24).

Several of us also have specific concerns about the content of the agreement. The list below is not exhaustive.

The EPA is supposed to promote sustainable development. This is the mandate set out in the ACP-EU Cotonou Agreement and it is embodied in several European policy documents and statements by high officials. But the development component of the Cariforum EPA has taken a back seat to the trade and investment liberalisation component.

Reciprocal trade

In order for a reciprocal trade agreement between partners of highly unequal levels of development to bring the poorer partners closer to the level of the richer, adequate resources must be transferred to them to build up their productive capabilities in infrastructure, human capital, and enterprise plant, equipment and technology.

In Europe this need is met by the massively endowed “structural funds” and the “social cohesion funds.” But resource transfers are not part of the legally binding obligations of the EPA. And the resources provided by the European Development Fund under the Cotonou Agreement are woefully inadequate. They amount to €165mn under the 10th EDF, which, when shared between 15 countries over the five-year period, amounts to € 2.2 million a country a year.

EDF funds are also notoriously slow in negotiation and disbursement and the EC has signaled that the priority will be EPA implementation.

The effect or potential effect of tariff elimination on items representing 82.7 per cent of imports from the EC needs to be carefully evaluated with respect to government revenue, income, production and employment; and country by country.

If the net economic effects are negative then this contradicts the stated objective of the EPA to reduce poverty and a case may be made for either (a) a longer transition period or (b) compensatory resource transfers to cushion these effects. In the absence of this kind of information we are going into this binding arrangement with our “eyes wide shut.”

The Caribbean has had duty-free, quota-free (DFQF) access to European markets for the majority of its exports since 1975 under the Lome accords. But growth of non-traditional exports to EU markets has been insignificant.

Market access does not automatically convert to market presence. There are major complaints from the private sector about restrictive Rules of Origin and onerous Technical Barriers to Trade (TBT), including Sanitary and Phytosanitary Standards (SPS). These obstacles have not been satisfactorily addressed by the EPA.

I note from your article that you are particularly keen on the growth of regional sugar refining industries. However, the EPA Rules of Origin specifically exclude a number of sugar-based products from “cumulation” of value added at least until 2015.

Dynamics of the EPA

This will obviously inhibit the growth of regional sugar-based industries for export to Europe.

Cariforum firms, especially SMEs, need targeted product-specific and firm-specific assistance to raise their supply capabilities and competitiveness to enable them to meet competition from duty-free imports from Europe and to take advantage of new export opportunities. This is absent from the EPA.

The many references to development cooperation in the EPA are not quantified and time-bound. This leaves the way open for the EC to decide what to support, when and by how much without any legal recourse available to Cariforum countries. As mentioned above, the EC has already signaled that the priority use of the limited EDF funds will be EPA implementation.

The opening of 29 service sectors and nine professional services in the EU to Cariforum service providers is highly conditioned. Service firms must have a contact of at least one year’s duration and their employees must have been working with the providing firm for at least one year. Professionals are required to have “mutual recognition agreements” in force between their own state and the EU state where they wish to practice.

Further, their entry is subject to an “economics needs test” in the EU member state. If they manage to overcome all these barriers their stay is limited to 90 days in a calendar year. This is like giving with one hand and taking with another.

With regard to entertainers, many were already gaining entry to the EU to perform. However, the EPA provisions will now require entertainers to have university certification or to be registered locally. Registration systems are at best embryonic in the region and when established will be required to meet EC approval. No commitments have been made by the EC in respect of visa, immigration, work permit and residency regulations; which as you know are very tight on the EU side and relatively relaxed on the Cariforum side because of tourism. So it will still be much more difficult for us to go there than for them to come here.

Cariforum has committed to opening 75 per cent of its service sectors to EU service providers for MDCs and 65 per cent for LDCs in respect of commercial presence.

This opens the way to displacement and/or acquisition of domestic firms by much larger and better endowed EU firms. The strategic implications need to be considered for the vulnerability to foreign decision-making and for the potential development of Caribbean-owned regional firms that are capable of going global.

The inclusion of “WTO-plus” commitments in the EPA in services, intellectual property, competition, public procurement, investment and e-commerce is not necessary to secure approval of the EPA under WTO rules, which require only WTO compatibility. They will require Cariforum sates to adopt legislation, regulations, practices, policies and that will be onerous in terms of money and scare technical manpower. The costs of compliance have yet to be quantified. The EC is promising development support for these purposes but it is not clear why this should be a Cariforum priority.

The WTO-plus commitments pre-empt and proscribe Cariforum governments’ policies in key areas of development policy. They also pre-empt the pending CSME regimes in these areas. It would have been more desirable to craft CSME regimes that reflect Caricom’s own circumstances, priorities and development objectives before making commitments to the EU.

“National treatment” requirements in the EPA, which forbid governments from discriminating in favour of local and regional firms, need to be carefully inventorised and evaluated, as they may prejudice the ability of governments to foster the development of local and regional firms capable of competing globally.

The dynamic of the EPA is integration with the EU economy (and the Dominican Republic) in goods, services, capital and economic policies. This effectively sidelines the CSME. The CSME is not an alternative to integration with the world economy but a platform for more efficient production and exporting to the world economy and pooled bargaining power. This path to dealing with globalisation will be ruled out by the EPA.

The institutional requirements for EPA implementation and governance are huge and will be demanding on the scarce money and manpower of Cariforum states.

Also they endow joint committees set up with the Europeans and the DR with powers to make legally binding decisions. Cariforum states will have veto powers but the EC will hold the upper hand because of the leverage of market access and development “assistance.” The powers may supersede Caricom’s own organs of governance.

The parties to the EPA are the EC acting on behalf of 27 EU states, which are also parties, and 15 Cariforum states.

Caricom as a juridical entity is not a party and Cariforum is not a juridical entity and therefore not a party. This will tilt bargaining power in implementation and on-going negotiations even more heavily in favour of the EC.

Also, it places Cariforum states in competition with one another and could lead to a widening of intra-regional inequalities, as some countries are less well endowed than others to take advantage of the EPA. Regional disintegration rather than integration could easily result.

There are several other questionable and disadvantageous provisions in the EPA that will doubtless become evident as the details of the agreement are examined.

The EPA provisions establish a dangerous precedent for up-coming trade agreements to be negotiated with the US and Canada

It might have been better for Cariforum, or at least Caricom, to have negotiated an EPA limited to what was necessary for “WTO compatibility,” with carefully calibrated import liberalisation attuned to the development of local production capacities and with specific commitments for assistance targeted at key infrastructure inputs, firm-level technical support and establishing market presence in EU markets. Inclusion of WTO-plus areas in services, competition, public procurement, and investment could be deferred pending WTO agreement in these areas, or at least pending completion of the relevant CSME regimes.

No doubt it will be difficult to adopt such a change in approach at this late stage. The agreement, though initialed, has not yet been signed by ministers or given provisional application (scheduled for April 15). However, once this happens, revising the EPA would be an exceedingly difficult and time-consuming process.

Would it not be more prudent to explore all possible avenues for reviewing and renegotiating the initialed text before it is cast in stone? (Incidentally, several African countries have initialed only interim EPAs and have been given until the end of 2008 to complete negotiations with the EC.)

Prof Havelock Brewster

Prof Norman Girvan

Prof Vaughan Lewis

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